Analysis: Not privatizing Pinnacol Assurance also could be costly

Costs could increase for employers insured by Pinnacol Assurance, the state-chartered workers’ compensation insurance fund, if it does not privatize.

That at least was the contention of an analysis presented to a task force looking at whether privatizing Pinnacol is a good deal.

In a plan backed by Gov. John Hickenlooper, Pinnacol, now a quasi-governmental agency, would be spun off into a private mutual assurance company with the state having a 40 percent ownership stake in the new company. Under the proposal, the state would also receive an estimated $13.6 million in dividends each year it could use for education and economic development purposes.

A number of business groups have eyed the proposal sketptically, saying the present system works well and keeps workers’ compensation premiums low while it would be unclear what privatization would do in the long term.

But a memo given to the Pinnacol Stakeholders’ Task Force from the panel’s chairman, John Huggins, argues that maintaining the status quo has many risks. The analyses in the memo were compiled by a team of legal and financial advisors working for Hickenlooper.

The memo notes that state-chartered workers’ compensation insurance funds in other states have been increasingly privatized, and these new, private insurers are now allowed to sell their coverage in Colorado.

“Pinnacol will face increased competition with no pratical ability to grow,” the memo said, “because in its current form it cannot compete in other states or other lines of business, and it has limited ability to grow organically due to its already large market share in Colorado.

“As competition increases, Pinnacol could lose market share when its less risk employers are lured away to competitors. This would leave Pinnacol with an overall riskier pool of business, costs would rise, and remaining policy holders would suffer. This stagnant situation for Pinnacol would likely result in higher costs and policyholder premiums over time, compared to the case where such new competition did not exist.”

The privatization proposal would allow Pinnacol to sell its workers’ compensation insurance in other states but it would take away its state and federal tax exemptions.

In 2009, lawmakers considered – then abandoned – a plan to take $500 million from Pinnacol’s assets to help balance the budget.

Pinnacol officials said the idea was an illegal raid, an argument backed by Attorney General John Suthers, a Republican.

Proponents of privatizing Pinnacol say doing so would end any debate over who owns the insurer’s assets.

Huggins also told task force members that Pinnacol’s existing board is considering whether there should be limits on executive compensation even after privatization. Pinnacol executives last year agreed to forgo hefty severance payouts that critics had labeled “golden parachutes,” but the Pinnacol board is being asked to look at excessive compensation even if Pinnacol were a private company.

A Kansas law dealing with demutualization, for example, prohibits “unjust enrichment” by insurance executives.

Ahhh, the promises of “privatization” have never been fulfilled. The Repub promises of cost reductions from privatizing everything have led to higher phone bills, energy bills, and just about higher everything because the private industry is more likely to find the need to produce higher earnings for the private holders of ownership. Then there are the escalating payments of mega-salaries to the executives in many financial firms that bleed the fund to death. This is not something to privatize. It seems that “Hickenlooper is a more Repub than Democrat, what’s that about?
He sees the 13 million a year fund fees to the state as bait, and used the “education” narrative, but I would not trust the Hick to deliver anything but the suds.

So it must be approved to be privatize 1st. Spot on with this write-up, I actually believe that this website needs far more attention. I’ll probably be back again to read through more, thanks for the advice!

Gov. John Hickenlooper has a great plan for that kind of agency. Having read this I believed it was rather enlightening. I appreciate you finding the time and effort to put this short article together. I once again find myself spending a lot of time both reading and leaving comments. But so what, it was still worth it!

Joey Bunch has been a reporter for 28 years, including the last 12 at The Denver Post. For various newspapers he has covered the environment, water issues, politics, civil rights, sports and the casino industry.